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How To Calculate Low Income Housing Tax Credits [LIHTC] - YouTube
Channel: Michael Belasco
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hey everyone this is Michael Belasco
from AdventuresinCRE.com today I'm
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going to walk you through this handy
little LIHTC calculator that I
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created or low income housing tax credit
calculator what I'll do is I'll walk you
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through the line items I'll provide you
a little context about you know how
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lytec is calculated on a project basis
alright so the first step here is to
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come to what is called our eligible
basis and it's very straightforward you
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know as is most of this I think the big
challenge with low-income housing tax
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credits is just you know learning the
different vocab and once you kind of
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figure all that out a lot it's pretty
straightforward that's the first thing I
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want to do is come to our eligible basis
and the way to do this is we first have
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our construction budget and then we
basically subtract out ineligible items
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and I have a little box to the right of
this calculator here which has
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ineligible items these are things like
land interest insurance so on so so
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anything that's non depreciable can be
excluded or is required to be excluded
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from the construction budget and so once
we have all of these line items
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you know identified and excluded we come
to what is called our eligible basis so
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once we have our eligible basis you will
probably have already predetermined
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whether your project qualifies for a
high cost adjustment so high cost
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adjustment qualifies for projects that
are determined to be in what is called
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difficult to develop areas or DBAs or
qualified census tracts now all of these
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are determined by the federal government
so if your project happens to fall into
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one of these areas you have the ability
to apply an additional 30 percent to
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you're eligible basis so in this model
right now we're assuming that this is in
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one of these areas and also simply say
it's not
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and then you'll see you have your
adjusted eligible basis here so that's
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the adjustable eligible basis and then
below that we have the applicable
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fraction now this is based on the amount
of the project that is deemed the
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affordable component of the project so
there's two ways to go about determining
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this one is called the unit fraction and
the other is called the floorspace
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fraction and you need to take the
minimum of either to determine the
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applicable fraction so the unit fraction
is the low-income units divided by all
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residential units and the floorspace
fraction is low-income space divided by
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the total residential space so whatever
is the lower is what qualifies in here
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now if you have a hundred percent
affordable housing project then you'll
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just drop in a hundred percent now after
going through that whole process we come
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to what is called our qualified basis
and so now from here we then go on and
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we multiply our qualified basis by
whatever rate we're going for so now
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there are two rates that you can go for
when you're trying to develop an
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affordable housing project four percent
rate and the nine percent rate now
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before we dive into that I think it's
easier for me to just continue on until
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we get to our let's go down to the over
to the over 10 years line item and then
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we'll go back and we'll revisit the four
percent of nine percent and how that all
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works so we'll take our qualified basis
and we'll multiply it by the current
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rate for either the four percent or nine
percent rate and today roughly it's
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around 3.2 percent
I actually didn't go tracker I did and
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I'm not recording exactly this but it's
close to to 3.2 percent and this is a
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rate that's updated monthly by the IRS
both the nine percent and the four
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percent rate so today's rate it's around
three point-two so what you do is you
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multiply the qualified basis by the
current rate and then you get you get
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the credit amount per year and so then a
tax credit investor gets to use this tax
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credit over ten years and so you
multiply that over ten
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and this is what's available for sale
and now let's just keep going and I said
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we'd stop here but you know we're almost
there so basically what happens is you
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you figure out you have this much this
many tax credits available and then
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there's a market for them and this
market is based on you know a tax credit
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factor and maybe we can end that here
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and so basically it's what's the cost
you know for every dollar of tax credit
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now the market fluctuates you know up
and down and you know the way tax credit
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investors will look at this as they'll
they'll run their own calculations
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internally they'll look at the tax
credit they also since they're going to
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be usually 99.99% owners of these
buildings they'll get the depreciation
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benefits any other write-offs they can
make with regards to taxes plus they get
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some operating cash flow as well and so
all that will be factored in and then
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you'll come up with a perceived market
value for these tax credits and then
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that in turn creates what the total
equity available is from lytec and so
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that is basically how it works and so
actually you know what what I think I'm
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going to do is I'm gonna actually create
a follow up video so we can discuss more
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about the 4% and 9% rate so hope this
bee is helpful and stick around for the
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follow-up video
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